Nortel's U.K. arm also sought protection under that company's bankruptcy protection provisions.
Nortel's trouble actually predate the economic crisis, analysts say. For one thing, according to Gartner analysts Akshay Sharma and Bob Hafner, Nortel "has accrued more than $4 billion of debt" -- the interest of which was due last week.
With this in mind, Sharma and Hafner said, Nortel made the right move. "Nortel's decision to seek bankruptcy protection is prudent. Nortel has $2.4 billion in cash for day-to-day operations, and with protection from debt obligations, it can focus on restructuring its debt," they wrote.
Nortel has also moved -- and proactively, at that -- to minimize the disruptive effects of its bankruptcy moves. CEO Mike Zafirovski met last week with both customers and media talking heads to brief them on Nortel's plans, while the company itself notched a manufacturing agreement with Flextronics, which currently produces a "significant" share of its products, according to Gartner.
All isn't sweetness and light, of course. Nortel is restructuring -- and in the midst of the most jarring global crisis since the Great Depression, to boot.
"It will be hard for Nortel to increase sales. Concerns about long-term support will make some enterprise and carrier customers move to other vendors in the next few months," Sharma and Hafner said. "Gartner has spoken to several Nortel channel partners and found that they remain positive. Nortel's relationship with Microsoft in the Innovative Communications Alliance will also continue. But some partners and resellers may refocus on other vendors. Nortel must give its channel partners additional training, marketing and sales support during this period, as well as engage in joint marketing."
Nevertheless, the Gartner duo expects Nortel to weather the storm -- in one form or another. "While in creditor protection, Nortel will work to restructure its debt," they wrote, suggesting that Nortel's restructuring could take up to 18 months. "After [that] Nortel should emerge as a viable company, but could look different and be a possible target for acquisition. Creditor approval will be required for all expenditures, which could affect some R&D as the creditors look at resizing the company."
They added, "Nortel has stated that it intends to retain the company in its entirety, but Gartner believes it will try to sell assets to bring in cash. It has already tried to sell its metro Ethernet division...and the next most likely candidate for sale is its carrier wireless division."
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